Just in Case: How Reform Might Survive Without the Mandate

June 8, 2012

Most experts expect the Supreme Court will issue its ruling on the Affordable Care Act in the last full week of June. Few seem certain of what that ruling will say. The Court could uphold the law its entirety. It could strike down the law in its entirety. Or it could strike down part while leaving the rest in place.

One very real possibility is that the Supreme Court invalidates the law's most controversial element, the individual mandate, but nothing else. Most of the commentary I've seen suggests such an outcome would be just as devastating as a decision to invalidate the law entirely. Here, for example, is how a new Politico article describes this possibility: "It’s lousy policy, one that Democrats say is a recipe for political confusion and flawed policy that virtually guarantees that the popular stuff in the law won’t work."

I can't game out the politics. But I don't agree with the conclusion on policy and neither do most professional forecasters who have evaluated the law. Eliminating the mandate would almost certainly weaken the Affordable Care Act, and do so signficantly. That's why the government argued in Court, correctly, that the mandate is "necessary and proper" for its broader scheme to make health insurance available to all.

But, even without the mandate, the law would still improve access and affordability, while giving lawmakers opportunities to strengthen the law later on. Partly that's because it would still make Medicaid available to everybody making less than 133 percent of the poverty line: That would allow millions of low-income Americans to get health insurance. And even the new regulations on the private insurance market, including those prohibiting insurers from denying coverage or charging higher rates based on medical risk, could function without the mandate—not nearly as well, but well enough to do a lot of good.

How can that be? Without a mandate, wouldn't healthy people stop getting insurance, since they could always buy it once they get sick? Wouldn't that force insurers to raise rates, scaring away more healthy people, and leading to the classic "death spiral" of rising rates and falling enrollment? Isn't that exactly what happened in states like New Jersey?

As I explained in April, the truth is actually more complicated than that:

The Affordable Care Act might weather the removal of the mandate a little better than similar state efforts did, because the law relies on some other mechanisms for stabilizing the insurance pool. Among other things, the law’s subsidies, which are particularly generous for people making less than 250 percent of the poverty line, would attract many people who currently find insurance too expensive.

The Congressional Budget Office projects that the Affordable Care Act would, without a mandate, lead to about 16 million people getting health insurance relative to the number who would have it if reform never took effect at all. Estimates from researchers at the Rand Corporation and Urban Institute, as well as MIT economist Jonathan Gruber, project similar coverage gains, although they differ in the details. (It's worth noting that a few experts, including some of Obama's original campaign advisers, have never thought the mandate was essential as CBO and the other researchers do.)

Here's another way to think about it. Some people choose not to get insurance, even when it is available to them, primarily because they think they'll never get sick or injured and are willing to risk the consequences. Without a mandate, they're more likely to remain uninsured.

But some people choose not to get insurance because it seems (and frequently is) too expensive, at least relative to the benefits they'd get. If your household income is $40,000 a year and the annual premiums for family coverage add up to $12,000, with huge out-of-pocket costs and gaps in coverage, why would you bother? The law's subsidies and, to a lesser extent, regulations on benefits should alter that calculus: Coverage will start to seem like a much better deal and many of these people will start buying. The net effect will be to bring many more people into the insurance pool, many of them relatively healthy, making it possible for insurers to spread the cost of high medical bills more broadly and keep costs down.

Just to be clear, striking the mandate would introduce a new element of uncertainty into health care reform: Nobody has ever tried a system with generous subsidies but no mandate. (Notice the use of words such as "might" and "maybe" in the paragraphs above.) And, at best, reform without the mandate would likely reach far fewer people and make the law as a whole less efficient, although not more costly per se. The government would have to spend more subsidizing each person, because premiums would be higher, but it would be subsidizing fewer of them. (The one clear negative impact, as far as I can tell, is that people making more than four times the poverty line—about $90,000 a year for a family of four right now—would face higher premiums and get no subsidies.)

On the other hand, lawmakers would have opportunities to do some repair work. They could enact mandates designed deliberately to pass constitutional muster or, as Paul Starr has suggested, they could try out substitutes like late enrollment penalties. And if it's difficult to imagine this Congress passing anything even remotely related to health are, it's not quite so difficult to imagine Congress doing something after this election. And it's not difficult at all to imagine some state legislatures taking matters into their own hands, particularly if they're getting an earful from nervous insurance industry lobbyists.

(The Huffington Post's Sam Stein reported early this week that White House aides and outside advocates are at least thinking through these possibilities. I'd be shocked if Stein's report is wrong and certainly hope it is right.)

If five justices are determined to rule against the mandate, I still hope they adopt the approach that Joey Fishkin of the University of Texas has proposed: Striking down the insurance requirement but leaving in place the financial penalty that goes with it. That would establish a constitutional principle (one I wouldn't like) while, most likely, allowing the Affordable Care Act to function more or less as its architects intended. But if five justices go farther and strike the entire mandate, including the fee, they still might not cripple the law. They might merely weaken it, if—and it's a huge if—they leave in place everything else.